2003FINANCIAL REVIEW

Samuel M. Garvin, Jr.Vice President and

Chief Financial Officer

SIMPLIFIED BALANCE SHEET (MILLIONS OF DOLLARS)

12/31/03 12/31/02 CHANGE

ASSETS Invested assets 873.2 680.5 (192.7) Reinsurance recoverable 361.3 331.9 29.4 Deferred taxes 0.0 24.1 (24.1) Other 43.3 34.7 8.6TOTAL 1,277.8 1,071.2 125.3

LIABILITIES AND SURPLUS Loss reserves 688.1 595.0 93.1 Unearned premiums 113.9 82.6 31.3 Payable for investments 4.0 0.3 3.7 Deferred Taxes 4.5 0.0 4.5 Other 6.1 7.2 (1.1) Policyholders’ surplus 461.2 386.1 75.1TOTAL 1,277.8 1,071.2 206.6

SIMPLIFIED BALANCE SHEET (MILLIONS OF DOLLARS)

12/31/03 12/31/02 CHANGE

ASSETS Invested assets 873.2 680.5 (192.7) Reinsurance recoverable 361.3 331.9 29.4 Deferred taxes 0.0 24.1 (24.1) Other 43.3 34.7 8.6TOTAL 1,277.8 1,071.2 125.3

LIABILITIES AND SURPLUS Loss reserves 688.1 595.0 93.1 Unearned premiums 113.9 82.6 31.3 Payable for investments 4.0 0.3 3.7 Deferred taxes 4.5 0.0 4.5 Other 6.1 7.2 (1.1) Policyholders’ surplus 461.2 386.1 75.1TOTAL 1,277.8 1,071.2 206.6

INVESTMENT MANAGEMENT

FIXED INCOME MANAGERS§ Fidelity Management Trust§ Morgan Stanley

EQUITY MANAGERS§ SSgA State Street Global Advisors

INVESTMENT ADVISORS§ Frank Russell Company

INVESTMENT MANAGERS ALLOCATION (MILLIONS OF DOLLARS)

12/31/03 12/31/02

Fidelity $211.7 24.6% $180.8 26.9%

Morgan Stanley $210.0 24.5% $179.4 26.7%

SSgA – US $346.4 40.3% $248.5 36.9%

SSgA -Non-US $ 91.1 10.6% $ 63.7 9.5%

Total With Managers $859.2 100% $672.4 100%

Cash $10.0 $7.8

Total $869.2 $680.2

ASSET ALLOCATION

Asset Class Target Drift Range

US Equity 40% 35% - 50 %

Non-US Equity 10% 5% - 15%

Fixed Income 50% 40% - 55%

SIMPLIFIED BALANCE SHEET (MILLIONS OF DOLLARS)

12/31/03 12/31/02 CHANGE

ASSETS Invested assets 873.2 680.5 (192.7) Reinsurance recoverable 361.3 331.9 29.4 Deferred taxes 0.0 24.1 (24.1) Other 43.3 34.7 8.6TOTAL 1,277.8 1,071.2 125.3

LIABILITIES AND SURPLUS Loss reserves 688.1 595.0 93.1 Unearned premiums 113.9 82.6 31.3 Payable for investments 4.0 0.3 3.7 Deferred taxes 4.5 0.0 4.5 Other 6.1 7.2 (1.1) Policyholders’ surplus 461.2 386.1 75.1TOTAL 1,277.8 1,071.2 206.6

NET CLAIM RESERVES(MILLIONS OF DOLLARS)

12/31/03 12/31/02 Change

Loss Reserves 82.5 91.6 (9.1)

IBNR 241.8 169.9 71.9

LAE Reserves 2.5 1.6 0.9

Total 326.8 263.1 63.7

SIMPLIFIED BALANCE SHEET (MILLIONS OF DOLLARS)

12/31/03 12/31/02 CHANGE

ASSETS Invested assets 873.2 680.5 (192.7) Reinsurance recoverable 361.3 331.9 29.4 Deferred taxes 0.0 24.1 (24.1) Other 43.3 34.7 8.6TOTAL 1,277.8 1,071.2 125.3

LIABILITIES AND SURPLUS Loss reserves 688.1 595.0 93.1 Unearned premiums 113.9 82.6 31.3 Payable for investments 4.0 0.3 3.7 Deferred taxes 4.5 0.0 4.5 Other 6.1 7.2 (1.1) Policyholders’ surplus 461.2 386.1 75.1TOTAL 1,277.8 1,071.2 206.6

UNEARNED PREMIUM RESERVES(MILLIONS OF DOLLARS)

12/31/03 12/31/02 Change

General Liability 46.7 34.4 12.3

Directors and Officers 50.5 22.0 28.5

Property 16.7 26.2 (9.5)

Total 113.9 82.6 31.3

2003 2002 CHANGEPREMIUMS EARNED: Gross premiums written 210.4 141.8 68.6 Unearned premiums – change (31.4) (21.1) (10.3) Gross premiums earned 179.0 120.7 (58.3) Reinsurance premiums ceded 60.4 (53.6) (6.8)NET PREMIUMS EARNED 118.6 67.1 51.5

EXPENSES Gross losses and LAEs 178.3 187.3 9.0 Reinsurance recoverable (59.8) (139.9) (80.1) Net losses and LAEs 118.5 47.4 (71.1) Administrative expenses 6.0 4.7 (1.3)TOTAL EXPENSES 124.5 52.1 (72.4)

(LOSS) INCOME FROM UNDERWRITING (5.9) 15.0 (20.9)

STATEMENT OF OPERATIONS(MILLIONS OF DOLLARS)

2003 2002 CHANGEPREMIUMS EARNED: Gross premiums written 210.4 141.8 68.6 Unearned premiums – change (31.4) (21.1) (10.3) Gross premiums earned 179.0 120.7 (58.3) Reinsurance premiums ceded 60.4 (53.6) (6.8)NET PREMIUMS EARNED 118.6 67.1 51.5

EXPENSES Gross losses and LAEs 178.3 187.3 9.0 Reinsurance recoverable (59.8) (139.9) (80.1) Net losses and LAEs 118.5 47.4 (71.1) Administrative expenses 6.0 4.7 (1.3)TOTAL EXPENSES 124.5 52.1 (72.4)

(LOSS) INCOME FROM UNDERWRITING (5.9) 15.0 (20.9)

STATEMENT OF OPERATIONS(MILLIONS OF DOLLARS)

NET PREMIUMS EARNED(MILLIONS OF DOLLARS)

12/31/03 12/31/02 Change

General Liability 58.9 42.3 16.6

Directors and Officers 53.7 16.9 36.8

Property 6.0 7.9 (1.9)

118.6 67.1 51.5

2003 2002 CHANGEPREMIUMS EARNED: Gross premiums written 210.4 141.8 68.6 Unearned premiums – change (31.4) (21.1) (10.3) Gross premiums earned 179.0 120.7 (58.3) Reinsurance premiums ceded 60.4 (53.6) (6.8)NET PREMIUMS EARNED 118.6 67.1 51.5

EXPENSES Gross losses and LAEs 178.3 187.3 9.0 Reinsurance recoverable (59.8) (139.9) (80.1) Net losses and LAEs 118.5 47.4 (71.1) Administrative expenses 6.0 4.7 (1.3)TOTAL EXPENSES 124.5 52.1 (72.4)

(LOSS) INCOME FROM UNDERWRITING (5.9) 15.0 (20.9)

STATEMENT OF OPERATIONS(MILLIONS OF DOLLARS)

NET LOSSES AND LAEs(MILLIONS OF DOLLARS)

12/31/03 12/31/02 Change

2003 59.6 - 59.6

2002 60.6 103.1 (42.5)

Prior (3.8) (53.6) 49.8

Tail 2.1 (2.1) 4.2

118.5 47.4 71.1

STATEMENT OF OPERATIONS (MILLIONS OF DOLLARS)

2003 2002 CHANGE

(Loss) Income from underwriting (5.9) 15.0 (20.9)Miscellaneous income 0.1 0.1 0.0Net investment income 19.0 18.0 (1.0)

Income before income taxes 13.2 33.1 (19.9)

Income taxes (0.8) (7.6) 6.8

NET INCOME 12.4 25.5 (13.1)

NET INVESTMENT INCOME(MILLIONS OF DOLLARS)

12/31/03 12/31/02 Change

Interest and Dividends 22.6 21.8 0.8

Realized (Losses) - Equities (6.6) (3.1) (3.5)

Realized Gains (Losses) - Fixed Income 3.0 (0.7) 3.7

19.0 18.0 1.0

INVESTMENT PERFORMANCE

EIM ANNUAL RETURN2003 . . . . . . . . . . . . 18.0%2002 . . . . . . . . . . . . (6.1%)2001 . . . . . . . . . . . . (1.1%)2000 . . . . . . . . . . . . 1.7%1999 . . . . . . . . . . . . 7.7%1998 . . . . . . . . . . . . 14.4%1997 . . . . . . . . . . . . 15.4%1996 . . . . . . . . . . . . 10.1%1995 . . . . . . . . . . . . 19.0%1994 . . . . . . . . . . . . (0.6%)

TAX ADJUSTED PERFORMANCE VS. BENCHMARKSBY MANAGER

ONE YEAR RETURNS

Performance Benchmark

Combined Fund 18.0 18.0

Fixed Income Fidelity 7.6 7.4 Morgan Stanley 5.7 3.8

Equity SSgA S&P 500 27.9 28.7 SSgA Non-US 38.7 39.2

LONG TERM INVESTMENT PERFORMANCEAS OF DECEMBER 31, 2003

7 Years 6.1%

5 Years 3.1%

3 Years 2.2%

CHANGE IN POLICYHOLDERS’ SURPLUS (MILLIONS OF DOLLARS)

BEGINNING SURPLUS 386.1Plus:

Net income 12.4Unrealized gain of investments 62.7

Change 75.1ENDING SURPLUS 461.2

ENERGY INSURANCE MUTUAL LIMITED